Guest Blog: Andrew Rear, Munich Re – Unsustainable retirement – the hard landing

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Our retirement expectations are unsustainable. Warren Buffet forecast this already in 1975 [1]. By 2014 he was describing the impact on public sector finances as a “giant financial tapeworm” [2]. The thing about tapeworms is that left untreated you can live with them for a long time, before they suddenly make you sick. Or dead.

My fear is that without concerted action, that’s where we are heading with our retirement expectations: to a hard landing, in which retirement expectations become the battleground around which politics and society fracture. This is part of what some see as the new class war.

The current or immediately past generation has done very well in comparison to its predecessors. This generation started work later, has retired earlier and will live longer, on a higher income. Whether you are talking about state or private provision, the picture is the same: we are expecting more and more from an already-strained system. In the 1950s our retirement years were perhaps a quarter of our working years. Before then, the ratio had been increasing rather slowly. One generation later, it has more than doubled. It’s hard to justify this: it’s driven by lifestyle, not by longevity.

The outlook for the next generation is not so good: they will retire later, with less income. As Dr John Goldthorpe said recently [3], “for the first time we have a generation whose life chances are worse than their parents not better”.

It’s my view that we have to accept the inevitable: retirement expectations are not sustainable so cannot be sustained. If we accept this, we can then focus on the arduous task of designing systems that allow a soft landing, rather than ignoring the problem and thereby risk a hard landing.

A hard landing is one in which the share of wealth between generations is driven by political conflict, not by reasonable compromise. In which each ‘side’ uses their political weapons to maximise their own position relative to others.

A soft landing is still one in which retirement provision is worse for future generations relative to past generations, but not so much worse that these future generations do not accept the solution as reasonable.

The critical word in all this is “relative”. Since I first became involved in savings policy more than 10 years ago, it has been my firm conviction that retirement expectations are essentially relative. The truth is, that we set our standards by the people around us. I do not want in retirement what I want now: my needs and desires will change as I age. But I do want to be relatively as well off as I am now; I want to keep up with the people I know. And I want, if possible, to be better off than my parents. Most of us have been better off than our parents in our working life, and I think that is what our parents wanted. So naturally we want to continue this in retirement, and to do the same for our children after us. Relative is the right word.

But once I am talking about relativity, I am talking about lifestyle not just absolute income. If my neighbour or my parents retire at 55, but I must work until I am 70, then I feel that as a relative deficit. Of course I may choose to work and then benefit from a higher income; having the choice is what matters in our relative world.

It believe, and hope, that a soft landing can be built around the trade-off between expectations and choices. I am certain that left untreated, the tapeworm will before too long make avoiding the hard landing all-but impossible.

Andrew Rear
Chief Executive, Africa, Asia Pacific, UK & Ireland Life, Munich Re

Andrew Rear spoke at the ILC-UK event Europe’s Ageing Demography, at the European Economic and Social Committee in Brussels, on the 5th November. This is the first in a series of guest blogs by Andrew which will expand upon the key issues he raised in Brussels.


[1] Buffett W. (1975) Letter to Katherine Graham, online [Accessed: 1 Dec 2014]

[2] Buffet W. (2014) 2013 Letter to Shareholders, Omaha, Berkshire Hathaway inc.

[3] Quoted in Anthony A., (2014) Class war is back again – and British politicians are running scared, The Observer 30 November p34

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